Thailand Market Summary Until the economic crises began in 1997, many of the world's automakers were planning to make Thailand a major cog in their Asian operations. The current crisis has delayed, but probably not stopped those plans. Capacity was expected to increase from 729 thousand units in 1996 to 1.4 million units by 2002. Thailand was the largest motor vehicle market in the Association of Southeast Asian Nations (ASEAN), with sales of 572,000 units in 1995 and 589,000 units in 1996. With onset of the economic crises in 1997, sales dropped dramatically. Total vehicles sales for 1997 were 363,000 vehicles and sales for 1998 were only 144,000 vehicles (putting Thailand vehicle sales below those of Malaysia, making Thailand the number two ASEAN country in terms of vehicle sales). Because of Thailand's internal tax structure, before the crisis began Thailand was the world's second largest market for pickup trucks (after the United States), with light truck sales of 367,900 trucks in 1996 (about 66% of the Thai market.) The recent economic crises has been particularly detrimental to Thailand's domestic auto sales, with large sales declines in 1997 and again in 1998. Many of the country's 13 auto plants suspended operations during the last four months of 1997 due to the economic crises. At present production has resumed at decreased levels in most plants. Some analysts believe Thailand's vehicle sales will take 4 to 5 years to recover to their pre-crises levels. Thailand's automotive exports, benefitting from declines in the baht, surged 199% in 1997, to 42,000 units and were up again in 1998 by 75% to 74,000 units. Japanese manufacturers (Toyota, Honda, Nissan, Mitsubishi and Isuzu) collectively account for 85% of vehicle sales in Thailand. Mitsubishi has reported plans to shift pickup production entirely to Thailand and Isuzu plans to double its pickup production in Thailand to 100,000 units. According to International Trade Commission (ITC) data, for the full year 1998, U.S. vehicle exports to Thailand were down 86 percent, from $21 million to $2.9 million, compared to 1997. The 1997 number was down from the 1996 high of $36 million. U.S. Motor Vehicle Investment in Thailand Ford: Even with the onset of the regional financial crisis, Ford did not alter its planned $500 million investment. The AutoAlliance (Thailand) assembly plant, (a 50-50 Ford/Mazda joint venture) began production in May 1998. The facility has an annual capacity of approximately 130,000 Mazda-designed pick-up trucks. GM: GM is building an assembly plant to produce passenger cars. With the onset of the economic crisis, GM did make some changes to the original production plans. GM announced that it would: cut back on its investment from $750 million to approximately $500 million; reduce production capacity from 100,000 units to 40,000 units annually; produce a smaller, less expensive vehicle than the Opel Astra originally planned, and delay the opening of the plant from late 1998/early 1999 to January 2000. GM stated it did not scrap the plant altogether because it believes the Southeast Asian economies will rebound and it wants to be prepared to take advantage of the recovery. GM's investment is being accompanied by another $250 million from its global parts suppliers. DaimlerChrysler: After a successful launch of Jeep Cherokee in 1994, Chrysler started its local assembling operation of Jeep Cherokee in 1995. A separate venture assembles Mercedes vehicles in Thailand. Trade and Investment Barriers Thailand has been a leader in the region for market liberalization in the automotive sector since dropping its ban on imported vehicles in 1990. Thailand permits majority foreign ownership of vehicle assembly facilities. Originally, Thailand planned to eliminate local content requirements on passenger cars (54%) by July 1, 1998. Faced with pressure from domestic auto parts producers to postpone the lifting of local content requirements on cars and a deteriorating domestic market, the Royal Thai Government (RTG) moved the date for the removal of local content requirements to January 1, 2000. The RTG has recently announced a plan to raise the tariff on completely knocked kits (CKD's) from 20% to 32%, while simultaneously lowering excise tax rates when the local content requirement is removed. In spite of the generally positive trend in Thailand, U.S. industry faces barriers to trade and investment in Thailand. The local content requirement is 54% for passenger cars and off-road passenger vehicles, 60-70% for trucks and 44% for engines. Local content is calculated on a percentage points per part system that is assigned by the RTG. Customs regulations are another major barrier to trade with Thailand. To prevent loss of revenue to under-invoicing, Thailand customs do not use CIF value for imported vehicles. Instead, a check price is established for various imports. This check price is established as the value of the first imported model. On October 14, 1997, as a result of the economic crisis, the RTG temporarily raised the duty on imported cars and sport utility vehicles. These increases are scheduled to be lifted on January 1, 2000. Current tariffs on completely built up units (CBU's): Passenger cars and sport utility vehicles - 80% (temporarily raised from 42.5% & 68.5% depending on engine size) Pickups - 60% (plus an additional 10% surcharge) Heavy duty trucks - 30 - 40% (plus an additional 10% surcharge) Current tariffs on knocked down kits (CKDs): 20% (plus and excise tax of 37.5% to 50% for passenger cars, 5% for pickup trucks and 32% for SUV's) A 10% surcharge is applied to all CKD imports Current tariffs on separate parts and components: 5-42% In addition, all vehicles are charged a 10% Value Added Tax and a 10% municipality tax. Vehicles with engine capacity above 3,000cc are also subject to a luxury tax.